FCC approves AT&T's acquisition of Cricket provider Leap, with divestitures

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The FCC approved AT&T's (NYSE:T) acquisition of Leap Wireless (NASDAQ:LEAP), the last hurdle the Tier 1 carrier needed to overcome to gain control of the regional prepaid provider and its Cricket brand. AT&T has vowed to retain the Cricket brand and compete aggressively on price in the prepaid market using the brand.

AT&T agreed to divest Leap spectrum in 12 markets, mostly in Texas in Nevada, in order to win approval of the deal.

AT&T plans to begin deploying LTE services on Leap's unused AWS and PCS spectrum licenses shortly after the deal closes. Further, the carrier plans to shutter Leap's CDMA network 12-18 months after the transaction officially closes, and will refarm that spectrum for LTE.

In order to move Leap's CDMA customers onto its GSM-based network, AT&T will offer a device trade-in credit program. Leap had 4.57 million total customers as of Feb. 28, according to AT&T.

Interestingly, AT&T said it will continue to honor Leap's roaming agreements as long as it operates Leap's CDMA network. Leap and Sprint inked a five-year, $300 million wholesale MVNO agreement in 2010, which allowed Leap to take its Cricket prepaid brand into markets where the company did not operate a network.

As part of the FCC's approval, AT&T agreed to continue to maintain Leap's existing rate plans for its existing customers until they upgrade their device, choose another rate plan, migrate to AT&T's network, or until AT&T shutters Leap's CDMA network. AT&T also agreed to offer a prepaid plan for at least 18 months for feature phones that includes unlimited voice, texting and data (speeds slowed after 500 MB) for $40 per month.

Leap shareholders approved the carrier's sale to AT&T deal in October; the deal was first announced in July 2013.

Last week at an investor conference, AT&T CEO Randall Stephenson said the Cricket brand is "a very, very strong brand down market into the prepaid segment," but that when customers are asked why they would not choose Cricket, the one overwhelming reason is a lack of network coverage.

He said that "overnight, the Cricket brand is going to have nationwide coverage on the AT&T network and this is the part of the market we have not participated in the past and we are going to be fairly aggressive here," he said, according to a Seeking Alpha transcript. "It's a place where we can go, leverage a different brand that leverage the AT&T network quality and we are going to still be little disruptive down at that end of the market. We think there is some really good returns and good growth opportunity and customers are asking for a high-quality network experience there in the market, so it will be an interesting time down there this year."

AT&T's LTE network currently covers 280 million POPs, and the company aims to reach 300 million by mid-year.

AT&T has said it will shutter its own Aio Wireless prepaid brand once it gains control of Leap. AT&T launched Aio last year shortly before announcing its deal with Leap. Aio has rebranded itself as the "new Cricket," and Jennifer Van Buskirk, who had been the president of Aio, is now the president of the new Cricket. The company said existing Aio customers will continue to use their pricing plans and the phones they have without changing anything, and that the only change they will see is the name change to the new Cricket brand.

"Although we're pleased the commission has required specific spectrum divestitures of AT&T in accordance with its existing spectrum policies, this proceeding highlights the need for new policies that better address the problem of spectrum consolidation," John Bergmayer, senior staff attorney at public interest group Public Knowledge, said in a statement. "The removal of Leap (and its well-known brand, Cricket) from the marketplace is troubling, because its low-cost, prepaid price plans are particularly attractive to low-income consumers. While, among other things, AT&T has committed to offering a $40, unlimited plan for feature phones for 18 months, the best guarantee of consumer protection is competition, not promises."

For more:
- see this FCC filing (PDF)
- see this release
- see this Aio release
- see this Aio site

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